Illinois attorney general sues Countrywide over lending practices

Thursday

Jun 26, 2008 at 12:01 AM

Illinois Attorney General Lisa Madigan filed a lawsuit against the nation’s largest mortgage lender Wednesday, claiming it marketed “toxic products” to thousands of unsuspecting home buyers in an attempt to boost its fortunes on Wall Street.

Illinois Attorney General Lisa Madigan filed a lawsuit against the nation’s largest mortgage lender Wednesday, claiming it marketed “toxic products” to thousands of unsuspecting home buyers in an attempt to boost its fortunes on Wall Street.

The civil suit against the embattled Countrywide Financial seeks restitution for the subprime lending practices widely blamed for starting the nation’s housing crisis.

“Countrywide pushed to sell more and more loans, clearly without regard to the borrower’s ability to make their payments,” Madigan said. “Much of this comes from Countrywide’s greed and their desire to dominate the marketplace. Unfortunately, this came at a very steep price for homeowners.”

The company also was sued Wednesday by California’s attorney general, the same day shareholders approved the lender’s takeover by Bank of America Corp.

Both lawsuits name Chairman and CEO Angelo Mozilo as a defendant.

A spokesman for the Calabasas, Calif.-based company did not immediately return messages from The Associated Press seeking comment.

As the nation’s largest mortgage lender and servicer, Countrywide has been under scrutiny by federal and state authorities. It also faces numerous other lawsuits related to its lending practices.

Illinois was particularly hard-hit by the subprime fallout, ranking 8th in the nation for the number of foreclosures, according to the latest data from foreclosure listing service RealtyTrac Inc.

Illinois officials claim the company misled customers about some types of adjustable-rate mortgages, including “hybrid” loans and pay-option loans, which give borrowers the option to make a lower payment but can result in the unpaid portion being added to the principal balance.

These loan types, which many other lenders offered during the housing boom, featured low initial payments and the potential for sharp increases after a few years. They now account for a large portion of the mortgages that have become delinquent or gone into default in the past year.

Among other things, Madigan wants Countrywide to pay restitution to all affected consumers who lost their homes or loans. She also asks for 90 days to review any loans that are in or near foreclosure to see if borrowers can pursue affordable options.

“Companies cannot unfairly and deceptively put people into loans,” Madigan said, adding some Illinois consumers were “lured into loans” by the company.

Among them, was Melissa White, a special education teacher from Schaumburg, whose says her house was placed in foreclosure by Countrywide after she refinanced the two-bedroom to help pay off medical bills.

White said she asked the company for a fixed-rate mortgage, but arrived at her closing to discover the company would only offer her a hybrid adjustable-rate loan that boosted her monthly payments by 60 percent.

She said the company promised to switch her to a fixed-rate mortgage two years later when the interest rate adjusted, but the promise was never put in writing and never fulfilled.

When she was unable to make a monthly payment, her church stepped up to help with the payments. But Countrywide later rejected the check from a third party and placed the suburban Chicago home in foreclosure.

Now she’s still fighting to repair her credit, even after the company ended the foreclosure proceedings.

“This isn’t right. It’s not fair,” she said. “It’s shameful.”

Authorities said it was nearly impossible to calculate the damages caused to Illinois homeowners by Countrywide, which has about 100 sites throughout the state.

Illinois’ suit comes after the state subpoenaed nearly 100,000 documents from the lender last fall when the number of foreclosures nationwide began to skyrocket.

Madigan said the documents showed how employees were given incentives to write loans, receiving higher commissions for the riskier products.

“People never understood the loans in the first place and once they couldn’t afford them, they couldn’t get out of the loans,” she said. “This was a strategy engineered from the top down.”

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